Turning Intentions into Action

This is a recent newsletter article from my friend, Gus Nassif, at Insurian Services. Self -Directed IRAs are a great tool for real estate investors.

Self-Directed IRAs (SDIRA) allow you to diversify beyond the so called “traditional assets,” such as CDs, annuities, stocks, bonds, options and
funds, and in such “non-traditional assets,” as real estate (land, residential & commercial), a business, notes, boats, planes and everything
else deemed “asset eligible” by the IRS. Diversifying in the assets you like, best understand, and in the ones best positioned for growth is
what the Self-Directed IRA is all about; self-control! Without a self-directed IRA, you’re restricted to traditional asset diversification only,
and that’s due to IRS plan guidelines, as well as, asset choice limitations by the custodian of the IRA you choose.In summary, if you haven’t already diversified in a self-directed IRA, now may very well be the time to evaluate doing so!

Now, one thing to remember is that a Self-Directed IRA is a term and not exactly an investment platform. It still needs to be associated with
the IRA or solo 401k it has selected, and therefore must adhere to that platform’s IRS’ guidelines, as for example, maximum contribution. Once
set up, it’ll allow you to diversify in both “traditional” and “non-traditional” assets. The IRAs in question come in many different flavors, from
the individual type plans as a traditional IRA (and Solo 401k), a Roth IRA, a SEP IRA, an Annuity, to the Rollover IRA. Additionally, there are the
Coverdell Education Savings Account and the Health Savings Account (HSA) which technically can be converted to a retirement plan if gone
unused on education.

On the otherhand, a group 401k like plan can be restricted by the plan sponsor and plan’s custodian as well, allowing diversification in only
pre-selected, and sometimes limited, mutual funds or group variable annuity sub-accounts. A group SIMPLE IRA, unlike group 401k, may give participants more flexibility. A group plan participant who is no longer employed, may transfer the full balance to a “rollover IRA” and diversify
the money in a self-directed IRA. However, if the participant is still employed, then only a portion of the balance can be transferred, and only
if the employer’s “plan document” did include the “Non-Hardship In-Service Withdrawal” provision.

Let’s use a real estate based self-directed IRA as an example to illustrate its mechanics:

1.) A custodian or administrator is selected to help set up the self-directed IRA. Custodians assist with all paperwork and transactions
within the Self-Directed IRA. Custodians are fee-based.

3.) Selecting a lender, only if you need financing, and applying for what is known as a “Non-Recourse Loan” comes next. This is a loan
that does not hold you personally liable in case of default. Again, it’s the IRA that owns the property and not you the account holder.
The lender has only recourse to the property held by the IRA. The lender loans the IRA a portion of the value of the property, usually
a maximum of 70% of the purchase price, with the remaining 30% coming through the IRA itself in the form of a down payment.
Ratios are lender-dependent.

4.) The property is purchased, then placed within the self-directed IRA and held in its name. Again, the IRA and not you owns the property!
It’s an “arms’ length” transaction, in that you can’t personally profit from it, but your IRA does until you’re 59 and 1/2 or older, where
you can begin taking distributions taxed as ordinary income, or for that matter, no taxation if the money was held in a Roth.

5.) You may be able to set up an IRA in an LLC for reasons of both asset protection and self-management. The latter would give you, the
IRA account holder, “checkbook control” in becoming the IRA LLC Manager. In this capacity, you simply write a check for all of the
transactions. Additionally, this type of control allows you to diversify in other assets as well, besides real estate. In this type of
scenario, you no longer have to direct the custodian to handle those transactions for you, doing so yourself. Now, do keep in mind,
that whenever an IRA uses any type of financing, as is the case here with the non-recourse loan, an “Unrelated Business Income Tax
(UBIT)” on the investment would have to be paid. There are both legal and tax aspects to this type of transaction requiring you to
consult with both an attorney and a CPA respectively.

Real estate attorney, Traci Ellis, and I held a teleclass today to discuss overcoming barriers to closing.

Here are some tips for successful closings:

Buyers

Be sure to get Owner’s Title Insurance. Lender’s require that you buy Lender’s Title insurance but you must request Owner’s Title Insurance. It costs very little and can protect your from nightmare situations should issues arise regarding title.

Don’t apply for credit before you close your loan. Applying for additional credit after you apply for your loan but before closing can stop your loan from going through. Lenders check your credit (again) prior to closing.

Do your walk through prior to the day of closing. If things aren’t just right, you’ll still have some time to work with the seller to fix them before closing.

Sellers

Be sure that your buyer is prequalified for a loan and can close.

Make sure that your title is clean and clear for closing (i.e. -no judgements, liens or issues)

Get an earnest money check. If you have an agent, be sure they have the check.

Bring keys, warranties, garage door openers, etc. to closing.

Buyers & Sellers

Manage the closing closely to ensure success.

Submit all requested documentation immediately.

Expect changes. A lot of things happen with closings. Don’t be surprised if there are changes and/or things that require your attention through the process and on the day of closing.

Request a copy of the settlement statement from the closing attorneys office before you go to the closing. Review it and immediately call the closing attorney if anything is incorrect so that it can be resolved prior to closing.

I must be getting old-this is the third time in my adult life that I’ve experienced a down economy. I remember when I graduated from college, things were not good and jobs were hard to find. Back at that time, my question was, “Is it really that bad or is that just what “old” people always say?”

Back in 2000 when the dot com bust erupted, the economy was tough once again. I was in real estate but also in the IT field. I created a seminar for the IT world on how to succeed in a tough economy.

Now, here we are again in a tough economy. What do I do? Create an Ebook, How to Sell Your House NOW! Even in a Tight Market. Then it hits me and I think, “Wait a minute, I’m getting old! This is the third time I’ve seen this tough economy thing happen.”

Did I forget to mention that I’ve also experienced some “hay days”? Oh, yeah. See, somewhere prior to a bust, there has been an extremely good time for making lots of money. For me, those times and opportunities have been in real estate, telecommunications, and IT.

Do we forget that things go in cycles and that when things are down, there will be an upside. It’s all a part of the cycle. Let’s look on the bright side. The issues of today’s economy provides opportunities. As real estate investors, we have the opportunity to buy at great discounts and at low interest rates. We can help people turn their lives around by saving them from foreclosure. Then one day, it will change yet again; and we’ll be enjoying the upside of the economy and the cycle. We’ll just have to make that mental shift to seek and find what works in that market.

The struggle most people have is how to respond when there is a downturn. It’s human nature to become set in our ways. Just when things seemed like they were working right, along comes a change and being the human creatures that we are, we resist. What we resist persists! When there’s a bust, stop resisting. Let go of “what was” and look for for the “needs” in the current market. Open your mind to what else is available. You never know what you will find -you might find your true passion, a new way of doing business, a new business all together -who knows what you will find. It may even be better than your original plan. Seek and ye will find -even in a downturn. It is often simply a matter of changing your mindset.

WSBTV has a great article from Business Week on their site. The article tells us why booms and busts are good for the economy in the long run.

Today’s real estate market is offering better deals than we’ve seen in a long, long time. Banks are offering properties at 70-75% of the market value. You make your money when you buy; and the time to buy is when prices are low -now!

The reality is that there is a lot of inventory on the market right now. That makes it a buyers market, creating greater and more deals. Take advantage of the deals out there while they are available.

Don’t be fooled by what you hear! There are still funds available -even for investors. Granted the requirements are more stringent than they were before with traditional lenders, but loans are still available. If you are unable to obtain a loan, seek partners and don’t miss out on these great deals that are available in the market today.

The important part about doing deals in any market is to do your due diligence. Factor in all the costs and ensure that you make an offer that will result in a strong profit for you out of every deal. For more information on how to analyze deals step by step, order my Deals or Duds? Home Study course at www.dealsorduds.com. In celebration of my 40th birthday, there’s a very special discount for Real Estate Reality Radio listeners -listen to today’s show for the discount code!

Traci Ellis, my wonderful real estate attorney friend in Atlanta, was the guest of my teleclass today on Estate Planning for real estate investors. Among other things, Traci shared , “Although our mortality may not be our favorite subject, it is an important subject to address because what we leave behind is our legacy.” By doing a little estate planning now, it can save those you love so much grief in the future. Without that planning, the state ends up choosing how your assets are handled. You are not working this hard for the state, are you?

At a minimum, we should all have the following:

1) Will 2)Power of Attorney 3)Living Will or Advanced Directive

If you have children, choose a guardian to raise your children should something happen to you.

The important information regarding your estate and your wishes should be documented. A family member or other person you choose should have a copy of the documentation and your attorney may also hold a copy. There are also online services now to upload these types of documents so that they can be retrieved from anywhere.

Don’t believe everything you hear. I’ve heard all kinds of stories from people and the media over the past few weeks about how there is no more money for funding deals; and it’ s just simply not true. One ezine that came out this week stated that there are no more stated income loans. Fortunately, on today’s Real Estate Reality Radio Show, Michael Gross of Dividend America Mortgage set the record straight on the lending market for real estate investors.

As for stated income loans, they are still available. It’s just that you’ll need a 680 credit score or better and you’ll need to verify assets. What has gone away in regards to stated income loans is the old stated income/stated assets. It’s now stated income/verified assets.

Construction lenders are a great way to get into deals. Using this strategy potentially allows you to refinance with a conventional lender and walk away from the deal with some cash in your pocket from the construction loan.

What are conventional lenders looking for in a borrower these days?

Safety: They want to see equity in the property rather than investors trying to pull all of the money out of the property. Michael says leave 30% equity in the property. If you don’t find a deal with that kind of equity -keep looking ! It’s a numbers game; and there are plenty of deals out there. If you need to learn how to analyze deals and what to offer to make your deals work, check out www.dealsorduds.com -I developed this home study course to help you do just that.

Long Term Holds: Lenders want to lend on deals that you are planning to hold. Producing a signed lease goes a long way. It’s even better to have an appraisal that shows the property as rented or leased. This strategy works well if you started with the construction loan, fixed the property up and then put a tenant in the property prior to closing on your long term convential loan.

If you’re sitting back saying, I don’t have good credit, there’s still hope! The fact that money is available to those with good credit just means that you need to get a partner. You can partner on deals and apply for loans as a co-borrower with someone who already has good credit. Finding partners is not that hard -people are all around you that have money and/or credit -start looking for them!

We talked today about all this and more on the show, you can listen to the show for more information.

Erica’s best tip for selling your house in a tight real estate market: Give them the Wow Factor. The “Wow Factor” includes making the house look top notch & pricing it right.

To make the home look top notch, clean it up, give it a fresh coat of paint, clean or replace carpets and add some new light fixtures if necessary. Stage the home with furnishings and accessories to make it look inviting. Give the buyer a reason to think, “Wow -right features, right price!”

Price the home at or below the most recent comparable sales. Erica shared some interesting information on pricing. She said, “If you’ve had 10-12 showings and no offers -You’re 5-10% over priced.” “If you have no showings you’re 10% over priced.”

Other topics discussed: where to invest, cash flow, tenant management, the new GA Purchase and Sale contract, short sales, and more! Here’s what one listener had to say about the show, ”

“I very much enjoyed listening to your broadcast. You helped me better understand the options around management of properties after the purchase is complete.”

What do you know about the regional planning of the area where you invest? I recently attended a meeting where there was a regional planning representative speaking about various plans for our region, from transportation to housing to parks and recreation and more. This meeting provided much insight into my own personal investing choices and decisions for the coming months and years.

A great way to be strategic with your real estate investing plans is to know and understand the regional plans for your area. These plans can provide great insights for you around your real estate investing strategy and contribute greatly to the success of your investing plans.

Speaking of being strategic, do you have a strategic plan for your real estate investing? Taking information like regional planning into account is what a strategic plan is all about. Every business needs a strategy, a long term plan of action that leads to winning!

If you and/or your company do not have a strong strategic plan, I strongly encourage you to take the time to work on your business and do the planning. In working with numerous clients and real estate investing companies, I find that the those who take the time to create and consistently work their strategic plans are by far the most successful. I absolutely love working with clients on their strategic plans and seeing the results it produces. If you are ready for a strong strategy for success – call me – 770-377-1847 – I’d love to help!

About The REI Resource Blog

I’m Nancy Spivey a long time real estate investor, speaker and coach. You can find more information on my website at www.transformit.net. Be sure to sign up for my ezine at http://www.transformit.net/ezine.html so you will receive all the latest updates. When you sign up, you’ll immediately receive resources from my private rolodex and a copy of The Science of Getting Rich ebook.

I created this workbook and audio to teach investors how to analyze deals. There’s more to it than just the comparables and the numbers, it’s the little details and that little extra that I teach you in this course that will have you buying deals everytime. It only takes one dud to turn things sour; and in this market, you must be sure you are getting the best deal possible!